Finding Shelter from the Storm: SBA Issues New Guidance on Safe Harbors for PPP Borrowers


By: Anastasia Osbrink

The safe harbor period for businesses that received the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) loans expired on May 18, 2020 after a 4-day automatic extension. That safe harbor provided that businesses that repaid loans by that date would automatically be deemed to have satisfied the “good faith” requirement of the PPP wherein borrowers certified that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” This safe harbor arose after reports of large businesses, such as Shake Shack and the NBA, receiving loans under the program. Under normal circumstances, a business must provide documentation of making unsuccessful attempts to obtain loans from other sources prior to receiving an SBA loan. However, the PPP required self-certifications of good faith and eligibility without requesting separate documentation. The purpose of this was to quickly get an injection of cash into the economy – particularly to small businesses – so that companies could retain and rehire employees. When it came out that large companies were also receiving these loans, a public outcry ensued and the SBA provided additional guidance allowing for this safe harbor period so that large businesses would be encouraged to repay loans without facing any further investigation, audits, or consequences based on the “good faith” certification. Many of these larger businesses may still satisfy the “good faith” requirement, but making quick repayments creates good optics for these companies and eliminates further audits based on this certification.

Now, in a further effort to conserve resources and protect small business’ payroll capacities, the SBA has announced an additional safe harbor. This second safe harbor provides for an automatic assumption of good faith for any borrower that, along with its affiliates, received under $2 million in PPP loans, regardless of whether that loan was repaid by May 18, 2020. This means that audits for good faith will only be conducted for companies that received over $2 million and did not repay that loan by May 18th. The SBA cited three reasons for this additional safe harbor: 1)  borrowers that received under $2 million are more likely to satisfy the “good faith” requirement because they are less likely to have had access to other loan sources; 2) it will help promote economic stability by helping small businesses retain and rehire employees that otherwise may not have the ability to do so; and 3) it will enable the SBA to conserve resources by only investigating and auditing those companies that received bigger loans, which could yield larger returns if successful. It should be noted, though, that neither of these safe harbors apply to other requirements, such as the eligibility certification, or outright false statements or fraud. However, except where there is evidence of actual fraud, it appears that companies that fall into one of the safe harbors are unlikely to be audited.

It also seems that the SBA is less focused on punishment and more focused on recouping loans that did not satisfy the good faith requirement. That is because the SBA additionally stated that if it does determine a company failed to satisfy the good faith requirement after being audited, the company will not face any further action or fines if it repays the loan in full. This though, again, does not apply to determinations of actual fraud.

As the focus shifts to larger companies and the safe harbor for these larger loans expires, the Securities and Exchange Commission (“SEC”) is ramping up its investigations of public companies that received PPP loans. The SEC is seeking information from several of these public companies in order to ascertain whether they satisfied the PPP requirements. As part of this sweeping probe, the SEC is sending out letters to these public companies entitled “In the Matter of Certain Paycheck Protection Program Loan Recipients,” in which it requests additional information and documentation. This again demonstrates the focus of audits and investigations on large companies that received significant loans rather than on small businesses.

If you have questions or would like more information, please contact Anastasia Osbrink at

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis.  Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**